A Company’s Stock Price May Have Very Little to do With The Size of Company

A Company’s Stock Price May Have Very Little to do With The Size of Company

I think there is this common misconception that must be addressed for those that don’t have any interest in “the market.” A Company’s stock price on a particular day does not provide information in of itself of the size of the company. An easy example:

Stock 1 – Closes at $608.21 on July 10, 2012

Stock 2 – Closes at $124,985 on July 10, 2012

Stock 3 – Closes at $648.65 on July 10, 2012

Which Company is “worth more”? If you guessed Stock 2 or 3 you are wrong.

Stock 1 is Apple – One of the largest (if not the largest) company in the world in terms of market cap

Stock 2 is Berkshire Hathaway – Despite being infinitely more expensive to buy one share the company is worth less than half of Apple

Stock 3 is Priceline – Priced more than Apple PCLN is less than one tenth of the size

How could any of this make sense?

What is a Company’s Market Capitalization?

The total dollar market value of all of a company’s outstanding shares. Market capitalization is calculated by multiplying a company’s shares outstanding by the current market price of one share. The investment community uses this figure to determine a company’s size, as opposed to sales or total asset figures.

So keeping with our example above,

Apple with a stock price around $600 has a market cap of over $563 Billion

Berkshire Hathaway with a stock price of around $125,000 has a market cap of about $205,600,000,000

Priceline with a stock price of about $650 has a market cap of about $31 Billion

You can buy a share of Facebook for around $30 bucks but the company is valued at about $100 Billion!

Market Cap and Investing

When investing there are distinctions between market cap and investment groups:

Large Cap: $10 billion plus

Mid Cap: $2 billion to $10 billion

Small Cap: Less than $2 billion

It always amazes me that a company worth less than $2Billion is considered “small” lol.

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Evan is the owner of My Journey to Millions which was started to track his journey from a broke debt ridden law school graduate to building a positive balance. Need more Evan? Follow him on Twitter, Contact him or get new posts directly to your email

My Journey to Millions

My Journey to Millions is an 8 year old personal finance blog focused on topics including basic personal finance issues, advanced insurance planning, high net worth estate planning. In addition, there is a particular focus on dividend growth investing and option trading.